Service Now (NOW) Q4 2020 Earnings Call Transcript

Service Now (NOW -4.03%)
Q4 2020 Earnings Call
Jan 27, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2020 ServiceNow earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Lisa Banks, VP of finance. Thank you.

Please go ahead.

Lisa Banks -- Vice President of Finance

Thank you, and good afternoon. Thank you for joining us for ServiceNow's fourth-quarter 2020 earnings conference call. Joining me are Bill McDermott, our president and chief executive officer; and Gina Mastantuono, our chief financial officer. During today's call, we will review our fourth-quarter 2020 financial results and discuss our financial guidance for the first quarter of 2021 and full-year 2021.

Before we get started, we want to emphasize that some of the information discussed on this call, particularly our guidance, is based on information as of January 27, 2021, and contains forward-looking statements that involve risks, uncertainties and assumptions, including those related to the continued impact of COVID-19 on our business and global economic conditions. The guidance we will provide today is based on our assumptions as for the macroeconomic environment in which we will be operating. Those assumptions are based on the facts we know today. Many of these assumptions relate to matters that are beyond our control and changing rapidly including, but not limited to, the time frames for and severity of social distancing and other mitigation requirements, the continued impact of COVID-19 on customers' purchasing decisions, and the length of our sales cycle particularly for customers in certain industries.

Please refer to the press release and the risk factors and MD&A sections of our SEC filings, including our most recent 10-Q and our 10-K that will be filed for the fiscal year 2020, for information regarding such risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such forward-looking statements. We'd also like to point out that the company presents non-GAAP measures in addition to, and not as a substitute, for financial measures calculated in accordance with GAAP. All financial figures we will discuss today are non-GAAP except for revenues, net income; remaining performance obligations or RPO, and current RPO or CRPO. To see the reconciliation between these non-GAAP and GAAP measures, please refer to our press release filed earlier today and our investor presentation and for prior quarters' previously filed press releases, all of which are posted at investors.servicenow.com.

A replay of today's call will also be posted on the website. With that, I would now like to turn the call over to Bill.

Bill McDermott -- President and Chief Executive Officer

Thank you, Lisa, and good afternoon, everyone. Welcome to our Q4 earnings call. Let me begin by extending my hope that you and your loved ones are healthy and safe. Having confronted an unprecedented global environment, we are looking ahead with optimism and are thankful to be so well positioned to serve our customers.

Needless to say, we delivered a market-leading 2020. We significantly beat expectations across the board, bringing great momentum into the new year. I could not be prouder of our team's execution. We delivered over 30% organic top line growth, 25% operating margins and $1.4 billion in free cash flow, just an outstanding performance and a testament to our ServiceNow strong culture.

Throughout the year, we led with courage and conviction. We took care of our team, our customers and our communities. And most importantly, we led with ServiceNow's purpose to make the world of work better for people. We strive to see the world for our customer's eyes with empathy to address their needs.

The workflow revolution is happening, and the pandemic is accelerating digital transformation. Every business needs speed, agility and resilience, and every C-suite leader wants to deliver great experiences for their employees and their customers. Businesses are changing the way they operate. They need to deliver fierce customer loyalty and deep employee engagement to win.

It's all about people, empathy at mass scale as the business imperative of the 21st century. The secular tailwinds of digital transformation, cloud computing and business model innovation have all intersected at a perfect moment in time. A paradigm shift is happening worldwide. In 2020, for the first time in history, we saw digital transformation spending accelerate despite GDP declining globally.

Digital investments are at an all-time high and are expected to continue growing. According to IDC, worldwide digital transformation investments will total more than $7.4 trillion by 2044. the digital economy is firing on all cylinders. ServiceNow is the platform company for digital business.

The Now Platform, what I call the platform of platforms, offers the speed, flexibility and innovation companies need. Our simple low-code app development enables fast workflows to solve any business challenge, delivering consumer-grade digital experiences. And Now Platform enables easier and faster implementation, delivering unbeatable time to value and fast ROI. That's the beauty of the Now Platform: One platform, One data model and One architecture.

We seamlessly integrated all of this and through our system. And that system integrates seamlessly with all systems of record that matter most to our customers. We deliver workflows through their preferred collaboration platform as well. We give our customers the freedom of choice to use their preferred tools and the unique ability to build apps at record speed.

Hungry and nimble is a core ServiceNow value. It's proven now or never. We are grateful to be in such a strong position at such a pivotal moment, and we are hungry. We are eager to use our strengths to help our customers succeed, help make our community stronger and help create great experiences for people.

We are seeing an extraordinary expansion of use cases in our business. Health care organizations are using ServiceNow to improve operations and service delivery, which means better outcomes for people. St. Jude Children's Hospital has been on a journey to accelerate progress toward finding cures and saving children.

In 2020, COVID-19 created a significant headwind to that mission. With much of the hospital staff required to work from home, the need to digitize manual workflows became more important than ever. The hospital leveraged ServiceNow's low-code app engine and innovation to integrate disparate systems and build custom end-to-end workflows, ultimately allowing them to ensure seamless delivery of clinical services. In under four weeks the ServiceNow solution was implemented at St.

Jude's Children's Hospital and everybody was moving toward their goal. We're also proud to be supporting NHS Scotland in their efforts to vaccinate 5.5 million citizens. NHS Scotland is using the Now Platform and our customer workflow to deploy a customized solution designed to meet their specific needs. Deployment took only six weeks, showing the agility of the Now Platform.

ServiceNow is enabling a comprehensive solution for the schedule and reporting of vaccination for Scotland's most vulnerable citizens. Within 12 hours of rollout, NHS Scotland booked over 220,000 appointments. So as you can see, it's not just about business workflows. It's about real people, enterprise digital transformation with how every organization in every sector in every geo are adapting, growing, creating new business models and empowering their people to be productive in any environment and in condition.

That's modern, agile, resilient business at work. And it's being powered by the Now Platform. Our unique platform and innovative product suite, our strong brand, high customer satisfaction and compelling value proposition are the differentiating factors and competitive advantages fueling our performance. Our Q4 results are testament.

We dreamed big and delivered. We grew billings by more than 40% year over year organically. We delivered 89 deals greater than $1 million and now have close to 1,100 customers paying us over $1 million annually. We landed our largest deal ever, surpassing the deal record we set in Q3 with the U.S.

Department of Veteran Affairs. Deal sizes overall keep getting larger. Our renewal rate remained best in class at 99%. Here are some key customer wins from Q4.

We signed a multiyear and multi-product strategic deal with AT&T. They are transforming by focusing on broadband connectivity, 5G and software-based entertainment while relentlessly focusing on digital, consumer preferences and experiences. We're delighted to work with AT&T Communications in its transformation. ServiceNow's AI-powered platform and service operations product lines will provide AT&T accurate and real-time operational visibility into every layer of the network fabric and help deliver the best-in-class customer experience, better experiences for people enabled by ServiceNow.

One of the U.K.'s big four banks is using multiple ServiceNow products, including our purpose-built new financial services operations product to help transform the way it operates and to deliver better customer experiences. The bank has seen a 70% efficiency and improvement of payment processing by integrating the Now Platform into its core banking systems. With ServiceNow, this bank implemented new automated processes in 60 workdays. In their words, employees moved from cut and paste, swivel chair manual processes to efficient, automated workflows.

In one case, employees went from managing 10 requests an hour to 1,000 requests in three minutes on the Now Platform, better experiences for people. PayPal recently expanded their relationship with ServiceNow as a key partner for elements of their digital transformation. And we're proud to have expanded our relationship with Nike, who is using the Now Platform to create better customer and employee experiences. Other Q4 deals across our portfolio represented wins with major customers in key sectors such as Booking.com in travel and hospitality, BP in energy, Santander U.K.

and USAA in financial services. And the list goes on and on. I hear so many ServiceNow success stories every day. Companies are onboarding thousands of people in a work from home environment, making them feel productive and part of the team from day one.

Customers are going live on the new platform in days, not months, making a difference for people now, not next month or next year. Now. More productive employees, happier customers, more efficient operations, there is not a CEO on the planet who doesn't want that. The Now Platform delivers.

These examples show how technology is no longer supporting the business technology in the business. Our IT leadership in workflows gives us a uniquely strong foundation to be the leading platform for digital transformation across the enterprise. In Q4, IT workflow products remained strong. ITSM delivered 17 deals over $1 million.

Our AI and machine learning capabilities embedded within our Pro SKU continue to resonate with our customers. ITSM Pro penetration is now over 20%. And the AI/ML capabilities of our Pro SKUs are automating processes to allow people to focus on the work that really matters. We saw a three-time increase in usage of our virtual agent technology in 2020.

And our Element AI acquisition underscores our commitment to being the leader in AI-enabled workflows. Element AI's deep bench of world-class scientists and practitioners will accelerate our AI innovation on the Now Platform, delivering not only better capabilities for it, but for employee and customer experiences as well. ITOM was included in 16 of the top 20 deals and had 15 deals over $1 million. Risk had a very strong Q4, booking more wins than all of the prior year combined.

Our ability to manage risk is really resonating with customers. ServiceNow is no longer viewed as back-end IT-oriented solution. We're now seen as a strategic partner that impacts the entire business. Customer workflows is our next $1 billion-plus market opportunity for ServiceNow, and Q4 showed strong momentum.

Customer workflows were included in 11 of our top 20 deals, driving such wins as AT&T. Ten of our customer workflow deals were greater than $1 million. In this pandemic, the employee experience is more important than ever, and our employee workflows is seeing strong demand. In Q4, 11 of our top 20 deals included employee workflows.

The pandemic is creating the greatest workflow challenge of our time, and ServiceNow is responding with agility speed and continuous innovation. We began last spring, as you'll remember, with our emergency response apps helping the state of Washington and many others respond to COVID. We fast followed that release with our Safe Workplace suite of apps that has demonstrated the power of the Now Platform and great employee workflows that we can deliver very quickly. In fact, more than 900 organizations now have downloaded the suite already.

This week, we just launched the first in a suite of planned vaccine administration applications to deliver out-of-the-box functionality for our customers. Our comprehensive approach enables workflow solutions to the complex challenges of vaccine distribution, administration and monitoring. As we have done with Safe Workplace, we will be delivering continuous innovation with our vaccine administration management applications. I'm excited to announce that the state of North Carolina Department of Health and Human Services is already leveraging the ServiceNow platform to power its COVID vaccine management system to help quickly and efficiently vaccinate 10 million North Carolinians.

President Biden has declared the distribution of COVID vaccines a top priority for his administration. This is one of the great workflow challenges of our time. As we are doing right now in Scotland, North Carolina and many other places, ServiceNow is ready to ensure vaccine distribution, administration and monitoring that it's simple, it's fast and it's effective. It will be so at the federal, state and local level.

In summary, we had an outstanding close to 2020, and we are not slowing down. We are changing the world one workflow at a time, and our vision is really resonating. C-level executives realize that behind every great experience is a great workflow. Our company is hitting on all cylinders.

In 2020, we grew our global workflows by 26%, hiring 3,000 people in 25 countries, with most hired and onboarded digitally. We are hiring incredible talent, including some of the greatest minds in the AI industry. Our culture is incredibly strong. Our employee engagement is at historic highs.

So too is our employee retention. Our brand is strong. C-suite awareness increased in double digits. Our innovation pipeline is robust.

We delivered 70% more features and innovations on the platform in 2020. Our partner ecosystem is expanding. IBM, Microsoft, Accenture, Deloitte, EY, KPMG and all the great partners in India, and many others have joined the workflow revolution with us. Together, we're bringing the innovation speed of a start up with the scale and reach of a rapidly growing $5 billion-plus pure-play SaaS company.

And our RPO is nearly double that at $9 billion. We're the only born in the cloud software company to have reached this size with our large-scale M&A. And we have a clear path to achieve our $10 billion revenue target. We are also deeply committed to making the World of work work better for people to helping our customers succeed.

We are deeply committed to making the world work better, too. Gina will share more about our focus on elevating our global impact. I'm incredibly proud of our just announced $100 million investment in an impact fund benefiting underserved communities. And we're deeply committed to being a leader in building a diverse, inclusive workforce in which everyone feels that they belong.

Because diverse teams with an indomitable will to win create great companies. ServiceNow is such a company, and we are well on our way to becoming the defining enterprise software company of the 21st century. That's our dream, and we will pursue it tirelessly with courage, passion and conviction. Thank you.

Over to you, Gina.

Gina Mastantuono -- Chief Financial Officer

Thank you, Bill. Happy New Year, everyone. I want to start off by echoing Bill's praise for all the employees of ServiceNow. It has been a year of unprecedented challenges, but the team has remained focused on executing and meeting the needs of our customers.

I couldn't be more impressed with our resilience, which is a testament to our great culture here at ServiceNow. And it's thanks to our people that we delivered another fantastic quarter to cap a strong year. We exceeded the high end of our subscription revenues and subscription billings guidance, which carried through to strong free cash flow generation. Q4 subscription revenues were $1.184 billion, representing 32% year-over-year growth, inclusive of a three-point tailwind from FX.

Q4 subscription billings were very strong at $1.828 billion, representing 41% year-over-year growth and $183 million beat versus the high end of our guidance. Adjusted growth was 38% year over year. The outperformance was driven by tremendous execution from our sales team, which resulted in significant net new ACV upside for the quarter as well as $80 million of billings pulled forward from 2021 due to early customer payments. We believe the high levels of early payments were onetime in nature as a result of customers having excess cash at the end of the year, given the incremental cost savings enterprises saw from COVID.

Excluding these early payments, normalized Q4 billings would have grown 35% year over year, still well ahead of our guidance. Remaining performance obligations, or RPO, ended the quarter at approximately $8.9 billion, representing 35% year-over-year growth. And current RPO was approximately $4.4 billion, representing 33% year-over-year growth. FX was about a three-point tailwind.

The traction we are seeing in our top line results reflect our focus on meeting the needs of our customers and their employees. As Bill noted, the workflow revolution is under way and is centered around the best experiences. And that's the Now Platform's super power, the ability to deliver workflows that create those great experiences for people. The Now Platform is playing a critical role in accelerating digital transformation.

We're treating our customers as partners, listening and learning about their challenges so we can help solve them. We aren't selling point products. We're providing them with comprehensive solutions with measurable results and quick time to value. Better together, that's the power of our portfolio.

It's this attention to our customers' needs that's driving our best-in-class renewal rate of 99%, demonstrating the stickiness of our business as the Now Platform remains a mission-critical part of our customers' operations. Our sales teams continued to win bigger deals in Q4, including our largest deal ever, which is three times the size of our previous largest deal. We closed 89 deals greater than $1 million in ACV in the quarter, with average deal sizes up 18% year over year. In 2020, we added nearly 700 net new customers, ending the year with almost 6,900 enterprises.

The number of customers paying us $5 million or more in ACV grew over 40% in fiscal 2020. Customers are realizing the strategic value of combining ServiceNow IT workflows with everything from HR, CSM and our App Engine to deliver greater value across the enterprise. Our ability to land new logos and expand our existing relationships amid a pandemic further validate the strength of our platform and the value we're delivering to enterprise C-suite. Turning to profitability.

Q4 operating margin was 22%, a 100-basis-point beat versus our guidance, driven by our strong top line outperformance. Year over year, our Q4 operating margin was consistent with last year as lower T&E expenses were offset by planned incremental R&D investments and marketing spend on pipeline generation. Our free cash flow margin was 45%, up 900 basis points year over year, driven by lower T&E spend and strong collection. For full year 2020, operating margin was 25%, up 300 basis points year over year.

And free cash flow was 32%, up 400 basis points year over year. Together, these results show the power of our business model and our ability to drive a balance of growth and profitability. Before I move to guidance, I want to give a brief update on the macro trends we're seeing in the business. The highly affected industries we outlined early last year, which represented about 20% of our business, continue to see macro headwinds but remained resilient.

Three of our top 20 deals in the quarter were from highly impacted industries, including retail, automotive and energy. We do expect headwinds in some severely impacted industries to persist in 2021. However, retention of existing customers remained very strong in Q4. Overall, we're entering 2021 with strong secular tailwinds created by a surge in demand for digital transformation.

Our pipeline continues to look healthy, and our brand continues to resonate with enterprise leaders. ServiceNow is exceptionally well positioned to seize this opportunity. We have the unique platform and innovative product suite businesses need, the workflow standard for enterprise transformation. Turning to guidance.

For transparency and clarity, I'd like to call out a few items. First, as I noted earlier, we saw $80 million in early payments from customers in Q4, which was an approximately 200-basis-point tailwind to full year subscription billings growth in 2020. These result in a more significant headwind of about 350 basis points for 2021 billings growth. To be clear, these early payments have no effect on the timing of revenue.

We've also previously talked about how early renewals and success with very large customers were impacting billing cycles as they can add additional volatility to timing and duration. This makes billings a less reliable leading indicator of top line growth. Given this noise and to provide investors with even greater transparency, we're introducing quarterly CRPO guidance. We believe CRPO will provide better visibility and is a more consistent indicator of business performance, normalizing for timing and duration noise.

We will continue to provide billings guidance throughout 2021 as a transition period. Second, the need to digitally transform has been accelerated by the current macro environment, creating a very large opportunity for ServiceNow. With the savings we are recognizing from our more efficient operating environment, we're continuing to invest in R&D and quota-bearing resources to drive innovation and pipeline to fuel our tremendous organic growth engine, ensuring that we maintain our market leadership and are well positioned to take advantage of the digital acceleration. These investments include those we were making in AI, such as the acquisition of Element AI.

Similar to previous investments and successful growth initiatives like our Pro Skus or geographic expansion, we will be disciplined about our spend. Beyond our business investments, we will also be investing in people and communities. We've always been focused on diversity, inclusion and belonging. And as Bill noted, we recently announced our first ever $100 million investment in a racial equity fund to build equitable opportunity for Black communities.

This investment is expected to earn a solid return while facilitating sustainable wealth creation through homeownership, entrepreneurship and neighborhood revitalization. Finally, COVID cases have been spiking in recent weeks, and some regions have reentered lockdown protocols. While we haven't seen any significant impact on our business, we will continue to monitor and be transparent in our disclosures throughout 2021. With that in mind, for Q1, we expect subscription revenues between $1.275 billion and $1.28 billion, representing 28% to 29% year-over-year growth, including a four-point FX tailwind.

We expect subscription billings between $1.31 billion and $1.315 billion, representing 24% to 25% year-over-year growth. Excluding the early payments from customers in 2020, our Q1 normalized subscription billings growth outlook would be 32% year over year. Growth includes a net tailwind from FX and duration of four points. We expect CRPO growth of 32% year over year, including a five-point FX tailwind.

We expect an operating margin of 25% and 202 million diluted weighted outstanding shares for the quarter. For the full-year 2021, we expect subscription revenues between $5.48 billion and $5.5 billion, representing 28% year-over-year growth, including a three-point FX tailwind. We expect subscription billings between $6.205 billion and $6.225 billion, representing 25% year-over-year growth. Excluding the early customer payments in 2020, our 2021 normalized subscription billings growth outlook would be 28% to 29% year-over-year growth.

This growth reflects an acceleration in net new ACV in 2021, and it also includes a net tailwind from FX and duration of two points. We expect subscription gross margin of 85%, reflecting some federal and public sector customers moving to our newly launched Azure offering as well as increased support for customers impacted by new and evolving data residency requirements. We expect an operating margin of 23.5%, representing 150-basis-points expansion off of our pre-COVID 2020 run rate. I would note that this is also an incremental 50 basis points more than the 100 basis points of expansion we target each year.

Finally, we expect free cash flow margin of 30% and 202 million diluted weighted outstanding shares for the year. In summary, in 2020 we delivered a combination of both strong top line growth and profitability, an incredible accomplishment in a COVID environment. Our outstanding results continue to demonstrate our strong product portfolio, our focus on building deep customer relationships and our commitment to enabling their digital transformation. We're delivering great experiences that drive powerful employee engagement, fierce customer loyalty and significant productivity gains.

We are the platform company for digital business. I'm extremely proud of our team's performance and our unrelenting execution in a turbulent year. We can't thank our employees enough for their hard work and dedication. We're well on our way to becoming a $10 billion revenue company on the strength of incredible organic innovation.

I'm excited about the opportunities ahead of us in 2021. With that, operator, we'd like to now turn over the call for questions.

Questions & Answers:

Operator

[Operator instructions] For our first question, we have Sterling Auty from J.P. Morgan. Your line is now open.

Sterling Auty -- J.P. Morgan -- Analyst

So in relation to the margin outlook, understand the investment opportunity that you have, but also curious what you factored in, in terms of any increased T&E and maybe perhaps even, dare I say, the return to a little bit of business travel throughout the year. Can you help us understand kind of what assumptions underlie the margin outlook on that front?

Gina Mastantuono -- Chief Financial Officer

Sure, Sterling. Thanks for the question. We talked about really continuing to focus on driving a balance of growth and profitability. And I've been pretty transparent and open about those margins.

We are currently expecting that a more normalized T&E will come back toward the back half of 2021. And so the expectations on the path will be similar to what we've been seeing, but that we would expect some more normalized T&E to start again in the back half.

Sterling Auty -- J.P. Morgan -- Analyst

Great, and then one just follow up. In terms of the digital transformations and the applications that you're tying into, I'd be kind of curious. Beyond HR and CSM, what are perhaps some of the other applications that you think that customers are going to more rely on your platform? As hopefully, the economy picks up on the back of vaccinations.

Bill McDermott -- President and Chief Executive Officer

Well, thank you very much, Sterling. This is Bill. What you're seeing out there is each industry has its own nuances. For example, in financial services, I talked about security.

Obviously, the future of work is a big movement to work from anywhere. And certainly enable that modern work environment and do that in a way where people can be onboarded without actually even meeting them, train them appropriately, and do the ongoing management of people where they can truly execute their mission and they know all the information and they have all the data to do their job. So this it's happening in every industry, and it's happened in every geo, and each persona has its own unique needs. What we think is unique about ServiceNow is that this platform, think of it as the workflow automation platform, comprehends all the opportunities with App Engine to customize things very rapidly like vaccine management, for example.

It also offers the IntegrationHub, and what the IntegrationHub enables is all the things from RPA, process mining, API integration, process analytics, native mobile, contextual interfaces and all the other things that CIOs and leaders of businesses are counting on to create end-to-end continuity in the business. And that's what makes us so unique. So having that platform advantage and our well-known position in IT is equally as relevant with the employee experience, because now you have one portal with a consumer-grade UX. All the complexity of hidden.

All the onboarding caring for the employee is done. And they are right off and running with their mission. In some cases, I have one very high level executive tell me, "I haven't met the 5,000 people I hired this year because of the Now Platform." And then on customer service management, in every industry, I gave the AT&T example as one, you're seeing the frictionless business environment really take off. So how do we deal with the end consumer and do so directly in a way that enables our services to be consumed.

So you're seeing this ease of use around ServiceNow. You're seeing the virtual agent guide people through subscription processes. And you're seeing all of our deep machine learning and AI help the customer navigate their sign-on processes and so forth. And the workflow then becomes the exception because humans shouldn't have to get involved in these processes unless the computer didn't get the job done.

And that gives us such an advantage because we're seeing situations where we can literally consolidate hundreds of systems to the Now Platform, take out huge costs, give the customer a great experience, and obviously not put so much pressure on human capital because people are only engaged when they're absolutely necessary in the customer satisfaction process. So you're seeing a mass consolidation of all the old stuff to the Now Platform. You're seeing IT, employee, customer and all the App Engine and Integration Hub opportunities really come together on one common platform, one data model and one architecture. So it's now a solutions company.

It's now selling a suite. And the broad spectrum of offerings gives us reach to the whole C-level executive team, not just one persona on the executive team.

Operator

For our next question, we have Keith Bachman from Bank of Montreal. Keith, your line is open.

Keith Bachman -- BMO Capital Markets -- Analyst

Yes. Thank you very much. I'll ask my questions, my two questions concurrently, if I could. One, in the comments, you mentioned that you thought you would see an acceleration of net new ACV, in 2021, which I thought was very interesting.

I was wondering if you could just drill down a little bit more on, a, the visibility into that; and b, anything that's bubbling up in in terms of -- this seems to be a greater emphasis to drive that net new ACV. What area? The follow-on question I want to direct to you, Bill, if I could. Last year, you were pretty clear that acquisitions was not part of your strategy. Maybe some tuck-ins here and there.

'21 the new year, lots of changes, the digital landscape is a greater priority. Is there any change in your thoughts as you're considering how ServiceNow could effectively build that long-term model as it relates to M&A.? That's it for me. Many thanks.

Bill McDermott -- President and Chief Executive Officer

Yes. Well, thank you very much, Keith. Maybe I'll start off and then give Gina a chance to build as she wishes on the net new ACV inquiry. First of all, I'll just say that net new ACV on a year-over-year basis will increase.

And the pipelines that we have in the company, and we manage the company on what we call the CEO of dashboards in real time, give us much greater coverage than we had last year. So we know that the facts substantiate the net new ACV increase. One of the interesting things that is fascinating is actually our executive briefings have increased 70% on a year-over-year basis. So if you think about our ability to get to the C-suite and increase the contact in this kind of virtual environment, it's actually gone way up.

So a lot of people, I guess, need a good meeting, and they want to figure out how they're going to digitally transform. And the Now Platform has just dynamite tailwind, Keith. Now in terms of the whole digital landscape, IDC, I think, the $7.4 trillion is very interesting statistic. This is factual.

If you just look at the way companies are prioritizing their investments, the one thing that's not going to get deprioritized is digital transformation and things that enable digital business. Because it's really the only way to either get yourself competitive or to increase your competitive advantage in your peer group, and every CEO completely understands that. And within that context, I think the uniqueness of ServiceNow to have so much momentum, not just in exciting new areas like the future of work with our employee experience or customer service management which is really a frictionless economy now more and more coming ServiceNow's way. But even in our core with IT, you look at our ITSM core business, it's outgrown our internal expectations by a lot.

And you're seeing with the Pro SKU where we add on the machine learning and the AI capabilities on a platform approach, that too is growing fast. And our engineering team is incredible here. I mean the level of innovation they're pushing out was 70% increase 2020 over 2019. And we have major releases coming this year commensurate with what we did last year.

So I wanted to give you a lot of confidence that the net new ACV is going up. The customers are buying, and the pipeline is super strong. And here's one thing that I found fascinating. There was a study done by Deloitte.

And with all this digital transformation, a lot of executives are looking back and saying, "Hey, why didn't I get a better return on all I put into digital?" And what they found is that about three fourths of the digital transformation projects didn't give the yielded return on investment that they had hoped for, and the number one root cause was integration. So as you think about the Now Platform integrating with 550 systems of record out of the box and all the collaboration tools, no matter which one the customer likes, and have that completely synchronized into the Now Platform out of the box, and you're up and running in days, it's [kind of] an attractive value proposition to our customers and even noncustomers that want to jump on board.

Gina Mastantuono -- Chief Financial Officer

I wouldn't add anything more on that. I think that, that was a great answer, Bill, on the acceleration of net new ACV. On the M&A conversation, I think Bill, I know you have a perspective.

Bill McDermott -- President and Chief Executive Officer

Yes. I mean look, here's the situation, Keith. We are not against M&A. So far, we have done technology tuck-ins.

Or we've done what I would call human capital tuck-ins, such as we've done with AI. We've gotten tremendous people into the organization to put all the value into the Now Platform and to generate net new revenue growth in the SKUs, such as what we did with IT, we'll do with employee, we'll do with customer, and obviously we'll do with the low-code no-code innovation that we can give to the creator, which is literally a business analyst or anyone that wants to write a low-code application in an enterprise. So the way we look at large-scale or larger scale M&A, we wouldn't be doing our job if we didn't look at every opportunity to satisfy our customers and our shareholders. But it's important just to register with you that our projection on the $10 billion is clearly in hand with our organic innovation and the momentum we have in the marketplace with our customers and also the noncustomers that want to join the team.

So there's nothing on the table right now for a larger deal, but it's not like we don't have our eyes wide open at the various opportunities. And if they ever presented themselves, you would know that we thought through it rigorously and it was part of our strategic imperative to really do the best we can for our shareholders and our customers. But right now, that is not on the table, and it's not something that's actionable at this time.

Keith Bachman -- BMO Capital Markets -- Analyst

Thank you guys very much.

Operator

For our next question, we have Raimo Lenschow from Barclays. Your line is open.

Raimo Lenschow -- Barclays -- Analyst

Hey thank you. Congrats from me as well. I have two quick questions. One number question, I'll start with that before I forget.

Gina, I got a couple of questions in the 200-basis-point headwind you got in 2020, like can you just walk us through the math how that becomes like 350 in 2021? You had a good few guys that just kind of struggled with that one. And then let's start with one for Bill. Bill, ITSM Pro should give you like we see the early momentum there. You talked about a 20% penetration.

Just how does it help you on the expansion and the renewal and the conversations you get with clients as a really good tool to engage the client base?

Gina Mastantuono -- Chief Financial Officer

Sure. So I'll take the first one. So yes, in Q4 we talked about $80 million of billings that were accelerated in Q4 out of Q1 of 2020. And so basically if you take that $80 million out of Q4 and put it back into '20 -- and put it back into 2021, that's when you see the double impact, right? And so you might take it out of 2020 and add it back into 2021.

And so it's about a 200-basis-points tailwind to 2020, but then about a 350-basis headwind in '21. So we try to do all the math for you so that is pretty clear. And just to be clear that these were early customer payments, and we feel like it's onetime in nature. And it was really a result of our hub customers having excess cash, driven by the opex savings that we said they were seeing in 2020.

And so I hope that, that clarifies to you, Raimo.

Raimo Lenschow -- Barclays -- Analyst

Perfect. That really helps. Thank you. I appreciate that.

Bill McDermott -- President and Chief Executive Officer

Great. And then Raimo, I'll just give you a view for our ITSM Pro since that was your question. First of all, it's growing in steep double digits, very important. And while we've penetrated 20%, that means we still have 80% to go.

So we really, really want the growth opportunity from a shareholder value creation perspective. But what you're looking at is the remote IT services requests growing exponentially, and many of the IT organizations out there are looking for ways to deflect lower-tier [cases]. So by leveraging Chatbox and streamlining processes, part of the AI capabilities are embedded in our Pro SKU. So that's one aspect of it.

And when you start to think about all the innovation that we've built in to this platform and the latest product releases, again the value is so much greater because of the organic innovation the team has put into it. But customers are loving, "Gee wow, I can transform IT," which then has an impact on the employee experience and the whole future of work. And incidentally, there isn't a customer out there now that's not asking us to revolutionize their call center operations or enable people to work from a virtual environment better. And obviously in this frictionless economy, "How can I do things with a no-touch or possibly the lowest touch possible? How can I eliminate the middleman in my margin pursuit?" as companies trying to grow in different industries.

All of that requires an IT backbone. So what you're seeing is a multiplying effect of one story compounding to another and really scratching the part of what we're doing for executives across the enterprise. That's why we're seeing deal sizes get larger and larger. You are seeing us be in a very strong position in terms of the product, the value that it delivers, and the processes that we've built for not only increased presale value creation but also post-sale value creation.

So ML, AI and the leadership that we've built into this platform is really unique.

Raimo Lenschow -- Barclays -- Analyst

Perfect, very clear. Congrats again. Thank you very much.

Operator

For our next question, we have Kash Rangan from Goldman Sachs. Your line is open.

Kash Rangan -- Goldman Sachs -- Analyst

Hi. Thank you very much. Congratulations, Bill and Gina and the rest of the team. My question for you, Bill, is the company has done a phenomenal job increasing its wallet share with really large companies through ITSM Pro, system workflow, HR, etc.

My question for you, as you approach the $10 billion journey and you look at other markets and software, you tend to have companies that's in database market or ERP, have a customer base that's closer to 100,000, 200,000, maybe even 400,000, 500,000. So as you look at the -- how do we put the scaling up of ServiceNow into a company that can serve not just 8,000, 9,000 customers, but more like 100,000, 200,000 customers, what does that journey look like? And what are your plans to make this excellent piece of technology that's known to less than 10,000 to be actually known and adopted by 100,000, maybe 200,000 customers. Thank you so much. That's my only question.

Bill McDermott -- President and Chief Executive Officer

It's my pleasure, Kash. Thank you very much for your kind remarks. As you think about our company, what's the beauty of us right now is we execute with the speed of a start-up, but we have the scale of a global company. So you're seeing us now expand in Europe quite dramatically.

We're hiring amazing, amazing talent. You're seeing us make moves into the Middle East. You're seeing the expansion in Latin America. We're really like starting to kick it into high gear in Asia with an expansion in South Korea.

We have lots of plans. And we have a well-known brand, of course, in Australia, in other more mature markets. In the United States, I feel like we're just getting started based upon the amazing receptivity to this new platform. And I think that a lot of that came from our emergency response to COVID and now the vaccine management.

And you look at markets and industries like financial services, like telecommunications, like our Boeing business and so many more. So I would say we're just getting started in terms of the real extent and the scale. The brand has now become a very well-known brand. The ecosystem tailwind has really kicked in, in the last 12 months.

And once you get calls from amazing big brands who then say, "I have to team up with you. My customers have demanded that I team up with you and integrate beautifully in Now Platform. My customers are telling me." That's a large telco company. In fact, it's not the one that I mentioned as the example, and they said, "We got to do more with you." So you're seeing now a world where the Fortune 2000 gives us an extreme opportunity for growth beyond $10 billion.

But our brand in industry; in geography; in persona; in same account revenue growth; in net new logos, which Gina and I also have an operating plan that increases very large this year over year in addition to the ACV. So Kash, look at our four businesses that we already are in. Look at every one of them as multibillion opportunities. And then don't forget the platform.

Because I think more and more, as the citizen developer concept takes off with ServiceNow, will find us in locations that go way beyond the Fortune 2000. And keep in mind, a lot of those large companies that we mentioned, they might have about a couple of thousand companies, and they say they have a couple of hundred thousand because of all the subsidiaries and so on. So we're talking about real companies with real names, and I think the subsidiaries of those in all areas of the world will really take off as well. We're in the early days here.

Kash Rangan -- Goldman Sachs -- Analyst

Thank you so much.

Operator

Thank you. For our next question, we have Walter Pritchard from Citi. Your line is open.

Walter Pritchard -- Citi -- Analyst

Hi. Thank you Bill, a question for you just broadly. I think if we were sitting here, when we were sitting here three or four years ago, we wouldn't have imagined the success that the employee product and the customer service product have had. And I'm wondering how you think about over the next several years, your growth from more prescribed SaaS applications versus the past? I feel like you've talked about more on this call.

And what would you point to in terms of some of the emerging SaaS products that might be today where HR and customer service were three or four years ago? Thanks.

Bill McDermott -- President and Chief Executive Officer

Yes, sure, absolutely. Well first of all, I would feature, Walter, the platform itself. And I believe strongly that ServiceNow has now pivoted to be that platform company for digital transformation. And that is a big difference from being what some used to say was the ERP of it.

So think about this as a platform company. Think about the core business and the continuous innovation that we're doing in the core, to stretch the core into new frontiers. We have a whole organization that is focused on the next big thing. So all the businesses that you would understand well, whether we invented it or someone else did, they all want to cooperate with the Now Platform because the IntegrationHub enables them to get in.

And once they get in, then they can build their imagination and their dreams with ServiceNow. So I think there's a big business model in that, that we have only scratched the surface on. If you think about employee experience, I think the companies that I talked to, including ours, we run someone else's system of record. But if you talk to 13,000 people in ServiceNow, nobody could possibly pick the system of record out of a lineup.

Because all they look at is this gorgeous consumer-grade UI that's driven by the ServiceNow portal, where all the services that they need based on their job profile are right there for them. I mean how big is that market? And the same thing with customer service management. We're learning fast in this new world that we've gone way beyond SFA and upsells and cross sells and conditioning that around a marketing campaign. We're into business model innovation, where great companies like Disney or AT&T are rethinking their business model entirely.

And they're capitalizing on the streaming rage, and they're coming up with subscription business models that reinvent the customer experience and give them net new businesses. ServiceNow is in that to win, and I think that TAM is absolutely unbelievable. The other TAM that's pretty interesting that nobody spent much time talking about, but it's one of the reasons I see ServiceNow's future is so bright, if you just take paper-based processes that are clocking up all of these companies and you digitize them to the Now Platform. There is a well-known bank out there that says the U.S.

market alone is a $280 billion market, which maybe globally that's a $400 billion market. And then I think this platform business, I really see an amazing, amazing future for the platform business. Just think about this. If you're the state of North Carolina and you're a ServiceNow customer and you've got a vaccine management challenge, like literally in days they can build a custom application tailored to 10 million citizens to get them the vaccine in their arm to protect them from this terrible virus.

Again, that is just built on to the Now Platform using the app engine, the IntegrationHub and all the innovation that our great engineers have built. So we're at the early days and there are some things that we have planned for that will be forthcoming in the months and year ahead. But right now, I just want to keep you focused on what we're doing, because literally we've only scratched the surfaces of these businesses.

Walter Pritchard -- Citi -- Analyst

Thanks Bill.

Bill McDermott -- President and Chief Executive Officer

Thank you Walter.

Operator

Next, we have Tom Roderick from Stifel. Your line is open.

Tom Roderick -- Stifel Financial Corp. -- Analyst

Good afternoon. Thanks for taking my questions. I'll echo the sentiments on congratulations on a great finish to a challenging but phenomenal year. Bill, I wanted to ask you just a question on the app engine.

Just looking at this percentage of ACV mix surged to 15%. You're seeing certainly larger and larger customers and more customers lean in on the App Engine vision. I'd love to hear a little bit more about that. In particular, if you could talk about what the App Engine vision has meant for your relationship with the channel partners, Accenture, Deloitte and others just broadly speaking.

It would be fantastic to hear about how you look at that today and how that's changing how big customers and partners like your SIs are leaning in here.

Bill McDermott -- President and Chief Executive Officer

Yes, fantastic. So let's start with the whole idea of the partners. There isn't a partner that's a global partner right now that does not have a business plan that's $1 billion or more with ServiceNow. And many of them are in the multiple billions, and they're building their business model.

Some of them tell me, they look at the Now Platform as the cross-platform integration engine of their business model with the various other companies, whether it's system of record software company or collaborative software company that they also have partnerships with. But they're looking at us at the center of that digital transformation effort. That is a very, very big tailwind. And many of the net new innovative applications that they will bring to their customers, their building on the Now Platform because the low code, no-code simplicity of the platform can enable them to do things at record speeds.

And I think that is a big, big unlock for them. So platform is really big. I also think the ML and the AI movement that we're on, Element AI was kind of the finishing touch of four M&A moves that we made, which was really about acquiring not just patents and thought leadership, but real enablement of the Now Platform so we can truly unleash humanity in ways that heretofore were not possible. And the computer and the human now can do things in terms of decision making, removing soul-crushing work that nobody really wants to do.

Issuing workflow orders only when it's necessary because the virtual agent can solve 90% of the problems in most engagement with customers. And this is now like a whole new universe because many of those partners looked at us in IT, and now the employee experience for example, [they get] the employee experience and they give us reach globally. And there are others on customer service management now that is saying what we're doing especially with digitizing business processes, ease of use on subscription models, like Disney+. We are so honored to see Disney+ say, "That's our digital bridge to the future.

We have great core businesses, but this is a digital bridge to the future." And ServiceNow is right in the mix of all of that. So look, it's a once in a generation opportunity, and I'm really, really happy. And I also look at the technology partners that we have now that have just adopted us as the standard for IT and so many other things. We made the announcement on IBM where they basically looked at their ITSM on-premise business and said, "We got to go to the cloud.

We'd rather go to the cloud with you. That's where the innovation is." And we formed very good partnerships like what we're doing with Microsoft, connecting with 365, Teams dynamics and bringing a whole new understanding of what's possible with the Now Platform working interdependently with Microsoft. So all that and more is all in the mix for our growth plan.

Tom Roderick -- Stifel Financial Corp. -- Analyst

That's great color, Bill. Congratulations. I'll jump back in the queue. Thank you.

Operator

Next question, we have Gregg from Mizuho. Gregg, your line is open.

Gregg Moskowitz -- Mizuho Securities --Analyst

All right, thanks very much and congratulations as well on a very strong end to the year. I'll just ask one question in the interest of time. Bill, you recently hired a leader for your customer workflows business. And you've obviously done well here, but can you walk through what you see as incremental solutions or monetization opportunities in this area?

Bill McDermott -- President and Chief Executive Officer

Yes, absolutely. Again, we're hiring best-in-class talent. We obviously have extremely bold ambitions to what we think we can do in the customer service management arena. Also, [John Ball], who is the gentleman that we hired as you know, he ran the Einstein initiative over another software company in the area.

And we feel that he has domain expertise. And when he saw what we were doing in customer service management, he said, "This is where I want to work." He said, "this is the biggest thing that I've seen." He said, "I can't get over this Now Platform, its simplicity, how quickly I can innovate on it." I'll give you an example. He was front and center on the vaccine management innovation. Literally, that whole process took us three weeks where vaccine management as a concept and an application was developed in three weeks and launched to the global marketplace.

And it's in Scotland, it's in U.K., it's in many states now in the United States. In the not-too-distant future, hopefully it's helping many of the federal agencies help the Biden administration save lives here in America and obviously in other parts of the world too. So it's the speed at which you can innovate on this platform. It's the pristine nature of this platform that you don't have to work with multiple different platforms from different M&A moves or different levels of complexity that others have built up over time.

Here, it's just like there it is innovate on, it. What's the idea, let's code it and let's get it out to the market. We did emergency response apps, if you remember, over a weekend. And we launched them globally in a week.

I mean it's just unheard of. And that's what's really exciting that our engineers are spending all of their time coding new innovations as opposed to integrating past applications.

Gregg Moskowitz -- Mizuho Securities --Analyst

That's great. Thanks Bill.

Operator

Thank you very much Gregg. We have time for one more question, and it's from Fred Havemeyer from Macquarie. Your line is open.

Fred Havemeyer -- Macquarie Group -- Analyst

I thought I'd actually go on a bit of a different direction here. And I'd like to ask as someone who actually led no-code projects for Fortune 500 companies during the pandemic, I'd love to dig into your low-code vision a little bit more. How do you see ServiceNow positioned within the low- and no-code markets, to be able to enable line of business users to develop workflow automation and really deliver on that promise of democratizing development?

Bill McDermott -- President and Chief Executive Officer

Yes, that's the whole point. That's what we're talking about here. I'll give you an example. I had one CEO said to me, "Hey, I want to get a good score on Glassdoor." And he said, "There doesn't seem to be an application on the market for it." I said, "Yes, why don't you get a business analyst and we'll design a workflow around that, and then you can launch it comp out into your company in record speed like a couple of days." So what's unique here in the case of vaccine management as an example, you took the platform and you customized something in a few days basically to vaccinate 5.5 million people.

But in the case of something where you just need to flow chart a workflow and rethink a process to, for example, roll out a rewards program or a recognition program, that could be done by a business analyst. So we're not inhibited by prepackaged software or doing things that are quite complex in development in the case of the platform because all you need is an idea. And if you have an idea, a business analyst can code on this platform. If you have an idea that's a little bit more complex, you can have a low-code situation where somebody with a little bit of computer intelligence skills can navigate this platform.

So this is kind of the secret sauce. I tell you when I think about what it can be because of the architecture and the simplicity of the platform itself, our imaginations just keep getting more and more fulfilled with dreams and excitement. And I'm just so excited by our engineering teams. And Gina and I have made sure that we fund them now appropriately.

And most of the investments around here go to the great engineers and the people that serve our customers. There's zero bureaucracy in this company, just like there's zero bureaucracy in the platform.

Fred Havemeyer -- Macquarie Group -- Analyst

Thank you.

Operator

[Operator signoff]

Duration: 70 minutes

Call participants:

Lisa Banks -- Vice President of Finance

Bill McDermott -- President and Chief Executive Officer

Gina Mastantuono -- Chief Financial Officer

Sterling Auty -- J.P. Morgan -- Analyst

Keith Bachman -- BMO Capital Markets -- Analyst

Raimo Lenschow -- Barclays -- Analyst

Kash Rangan -- Goldman Sachs -- Analyst

Walter Pritchard -- Citi -- Analyst

Tom Roderick -- Stifel Financial Corp. -- Analyst

Gregg Moskowitz -- Mizuho Securities --Analyst

Fred Havemeyer -- Macquarie Group -- Analyst

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